TeraWulf Inc. (WULF) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the TeraWulf 2026 First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Larkin, Senior Vice President, Director of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, and welcome to TeraWulf's First Quarter 2026 Earnings Call. Joining me today are Chairman and CEO, Paul Prager; CTO, Nazar Khan; and CFO, Patrick Fleury. Before we begin, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. Words such as anticipate, expect, believe, intend, estimate, project, could, should, will and similar expressions are intended to identify forward-looking statements. For a discussion of these risks, please refer to our filings with the SEC available at sec.gov and in the Investor Relations section of our website. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are available in our earnings release and filings. With that, I'll turn the call over to our Chairman and CEO, Paul Prager.

Thanks, John, and good morning, everyone. The first quarter of 2026 was about execution. We exited 2025 with an established platform, including sites, contracts, capital and strategy. And what you are seeing in Q1 is the early conversion of that foundation into operating performance and recurring revenue. That strategy continues to guide everything we do, controlling energy advantage sites, engineering infrastructure around power and contracting long-term credit-backed AI capacity. At this point, we are moving from formation to delivery. You can see that most clearly in our operations. During this quarter, we continued scaling our HPC platform at Lake Mariner with 60 megawatts of critical IT capacity energized and generating revenue as of March 31. Importantly, this is the first period, where HPC leasing is meaningfully reflected in our financials, contributing $21 million of lease revenue during the quarter. At the same time, we are transitioning portions of our legacy mining footprint to support higher-value HPC workloads. That transition is deliberate. Mining served its purpose. It enabled us to build infrastructure, monetize power and develop operational expertise. But the future of this platform is contracted long-duration compute infrastructure. That same focus on execution carries through to development. We continued advancing construction for Fluidstack and Google at Lake Mariner, while incorporating customer-driven design refinements. These are not disruptions. They reflect the reality of building infrastructure for sophisticated counterparties. We are building to evolving hardware and tenant requirements, not in anticipation of them, and that discipline reduces execution risk and improves long-term outcomes. CB-3 at Lake Mariner remains on schedule, and we are working closely with Fluidstack and Google to coordinate energization with hardware deployment. Execution at this scale requires tight alignment between infrastructure readiness and customer deployment, and that coordination continues to progress well. At the same time, we are expanding our platform. Since year-end, we have added meaningful new power-backed capacity, including the Hawesville, Kentucky site, a large-scale campus with immediate power availability and significant expansion potential. In parallel, we're progressing the Morgantown acquisition in Maryland, which remains subject to regulatory approval. We currently expect a FERC decision in the mid-summer time frame. Strategically, Morgantown is a highly attractive asset in one of the most power-constrained regions in the country. And that ties directly to how we think about power. We are not pursuing power as an input cost. We are structuring power as a core asset. If you step back, the broader AI build-out is accelerating, but it is increasingly constrained by power, including interconnection delays, transmission limitations, the need for new generation and transmission and the capital and credit required to bring these assets online. The constraint is not GPUs. It is power. And in that environment, the industry is moving toward integrated campuses, where generation, storage and compute are designed together. That's exactly how TeraWulf operates. We are fundamentally a power company that builds digital infrastructure, not the other way around. We understand how to source and control power, how to permit, operate generation, how the grid behaves and how to integrate these systems at scale. There are very few teams that can do all of that credibly, and that continues to differentiate TeraWulf. Against that backdrop, demand remains very strong. We continue to see active engagement from hyperscalers and AI compute platforms across that portfolio. At Lake Mariner, we are executing against existing contracts. And in Kentucky, we are engaged in advanced negotiations. More broadly, when you look at the pipeline, the opportunity set continues to evolve. Given the state of interconnection queues, we believe there will be an increasing opportunity over time to partner directly with utilities to develop new sites and aggressively advance existing sites. Utilities are going to be looking for partners with the experience and credibility and the capital required to actually deliver on these projects, and we believe that TeraWulf is very well positioned. We also believe that the market is moving towards a higher bar for execution certainty around grid access itself. Securing queue position alone is no longer enough. Utilities and regulators increasingly require confidence that projects can deliver the infrastructure, equipment and financial support needed to come online at scale. Over time, factors like procurement capability, delivery credibility, financial assurance become increasingly important differentiators. That dynamic favors scaled, well-capitalized operators with real development and power experience. Our platform is designed to operate across all three paths to power, immediate access as we have in Hawesville, bring your own generation as we are pursuing in Morgantown and increasingly, utility partnerships as interconnection queues are rationalized and prioritized. That is a structural shift in how this market will develop, and it plays directly to TeraWulf's strengths. Now let me spend a moment on Kentucky. I have said that we expect to have a customer in place in the second quarter, and I remain highly confident. We are in late-stage negotiations. The process has been extremely competitive and engagement is exactly where we want it to be. At the same time, we recognize that projects like these raise real questions around environmental impact and power costs. We take those seriously. Our approach is to engage early and transparently and to help communities understand how these facilities serve as long-term economic engines through jobs, investment and infrastructure, while being thoughtful and responsible to their impact. That is core to how we execute. And importantly, even with that confidence, our approach remains disciplined. We do not build on speculation. We contract first, deploy capital second. That discipline shows up in how we evaluate opportunities, focusing on durable power control, scalable development, credit-backed counterparties and capital efficiency. We review a significant number of opportunities, but only a small subset meets that high bar. And that same discipline applies to capital. We entered 2026 with substantial liquidity and a fully funded development pipeline with $3.1 billion of cash and restricted cash on the balance sheet at quarter end. That capital is being deployed into contracted or actively commercializing assets, not speculative builds, and our financing strategy continues to align capital with long-term cash flows. You can see the transition of the business model clearly in our financials. In the quarter, digital asset revenue was about $13 million, while HPC leasing contributed $21 million. That shift will continue, and the business will be increasingly driven by stable, contracted, high-quality credit-backed revenue. That is the end state we have been building toward. So when you step back, the TeraWulf story is consistent. The strategy is unchanged. The platform is in place. The sites are secured. Demand is strong. Capital is in place. We are locked and loaded. From here, it is about execution, delivering capacity, energizing megawatts and converting contracts into durable recurring cash flow. That is what will define 2026. I'll now turn it over to Nazar to provide an update on construction and delivery.

Thank you. As Paul mentioned, execution across the platform continues to progress well. Let me provide a brief operational update. Starting at Lake Mariner, execution continues to progress well. During the quarter, the second data hall in CB-2 came online, bringing all Core42 capacity into service and generating revenue as of the end of the first quarter. Turning to the Fluidstack deployment, including CB-3, CB-4 and CB-5, all major project time lines remain unchanged from our prior update and execution across the campus continues to track well against schedule. For CB-3, we are on track to complete our defined scope by the end of May and are actively coordinating with Fluidstack and Google on final energization and lease commencement. CB-4 and CB-5 remain on track for delivery in the third and fourth quarters of 2026, respectively. In parallel, we continue to advance development and construction activities across the broader platform, including our joint venture in Abernathy, Texas. As a reminder, the Abernathy joint venture project is being delivered under a lump sum EPC agreement with Hypertec with Fluidstack leading development and construction. While execution remains on track relative to our scope commitments, we are working closely with Hypertech and Fluidstack alongside the ultimate compute end user to finalize deployment sequencing and delivery timing. As those milestones are finalized, we will update the market accordingly. More broadly, these are large-scale infrastructure deployments that require an immense amount of integration. Success depends on maintaining tight coordination across the power infrastructure, equipment procurement, construction delivery and customer hardware deployment. As these campuses scale, execution certainty increasingly matters just as much as site selection or interconnection access. And that is an area, where we believe our team is highly differentiated. With that, I'll turn it over to Patrick to review the financial results for the first quarter.

Thank you, Nazar. The first quarter 2026 results reflect a business in transition with a meaningful contribution from the rapidly growing HPC lease segment and strong operating profit at the Digital Asset Mining segment due to its flexible load profile and demand response participation. In the first quarter of 2026, revenue was $34 million, down from $35.8 million in 4Q '25, primarily driven by lower Bitcoin production. Importantly, HPC lease revenue increased to $21 million in Q1, up 117% from $9.7 million in Q4. In March, CB-2 achieved RFS or Ready for Service and the lease with Core42 commenced. We have now delivered all 60 critical megawatts of capacity to Core42. As additional buildings come online in 2Q, 3Q and 4Q, revenue mix will continue shifting towards stable contracted HPC revenue. Cost of revenue, exclusive of depreciation, decreased 88% from $18.9 million in Q4 to $2.4 million in Q1. Demand response proceeds recorded as a reduction in the cost of revenue increased to $14.1 million in Q1 from $4.4 million in Q4. Operating expenses increased as we scaled the platform to support HPC deployment. Quarter-over-quarter operating expenses rose to $11.2 million from $8.8 million. Regarding the HPC leasing segment profitability, as presented in Note 17 of our 10-Q, the as-reported quarterly segment profit margin is approximately 50% versus our long-term guidance of approximately 85%. That difference is driven by three factors: first, $2.1 million of tenant fit-out revenue and associated costs during 1Q. TFO carries a modest margin as provided for under the HPC leases. Second, $3.5 million of pre-revenue operating costs at WULF Compute. And third, $2.1 million of development costs across our 1.75 gigawatt portfolio of uncontracted development sites. Adjusting for those factors yields approximately 85% segment profit margin in 1Q. SG&A expenses also increased as we scaled the platform to support HPC deployment. Quarter-over-quarter, SG&A expense rose to $127.8 million from $66.6 million. After adjusting for stock-based compensation, SG&A decreased from $60.1 million in Q4 to $26.3 million in Q1, in line with our prior guidance of $75 million to $100 million for 2026. Depreciation was flat at $28.5 million in Q1 versus $27.7 million in Q4. Impairment of PP&E in 1Q was $25.7 million, $8.9 million of which was driven by the shutdown of a mining facility and cessation of Bitcoin mining operations to support the HPC operations and $16.8 million related to acquired assets of Hawesville, Kentucky associated with asset retirement obligations. Interest expense in Q1 was $67.1 million compared to $62.4 million in Q4, and we recognized interest income of $29.4 million in Q1 compared to $31.5 million in Q4. The increase in net interest expense was expected following our capital raises at TeraWulf and WULF Compute in the second half of 2025. Actual interest paid during Q1 was $5.3 million compared to $6.9 million in Q4. Change in fair value of warrant liabilities in 1Q and 4Q was losses of $216.3 million and $5.2 million, respectively, related to the Google warrants. This is a noncash loss and does not affect our liquidity. Equity in net loss of investee, net of tax for 1Q was $11.5 million compared to a net loss of $4.1 million in 4Q, which represents TeraWulf's 50.1% share of the net loss of the Abernathy joint venture, which was formed in October 2025 and has not yet commenced operations. Our GAAP net loss in 1Q was $427.6 million compared to a net loss of $126.6 million in 4Q, with the increase primarily driven by noncash fair value adjustments related to the Google warrants and noncash stock-based compensation. Our non-GAAP adjusted EBITDA in Q1 was a negative $4.1 million, an improvement from negative $50.9 million in Q4. Turning to the balance sheet and liquidity. As of March 31, 2026, cash and restricted cash totaled $3.1 billion. Total assets amounted to $7 billion with total liabilities of $7.1 billion. Regarding liquidity, as detailed in our 1Q investor presentation on the slide titled Capital Structure, as of March 31, the TeraWulf parent entity held approximately $300 million of available unrestricted cash. This figure increased to approximately $1.5 billion when incorporating the impact of the equity we raised in April. As of March 31, 2026, WULF Compute remains on budget and had approximately $2.8 billion of gross cash or $2.3 billion net of debt service reserve and interest during construction accounts, with $1.5 billion of CapEx spend complete and $2.2 billion remaining. With regard to the Abernathy JV, as of March 31, 2026, the JV had approximately $1.4 billion of gross cash or $1 billion net of debt service reserve, interest during construction, letter of credit and HoldCo LockBox accounts with $0.4 billion of CapEx spend complete and $0.9 billion remaining. With respect to Kentucky, subsequent to the quarter, we repaid the $100 million draw on the bridge credit facility and terminated the facility. We expect a portion of the approximately $1.2 billion of equity raised year-to-date will fund TeraWulf's equity contribution to the Kentucky project. Demand for near-term power remains strong, and we are targeting 480 megawatts online in the second half of 2027. In summary, 1Q reflects a business in transition from volatile Bitcoin mining revenue to stable contracted HPC revenue. Mining continues to strategically support this transition. Contracted HPC revenue is ramping. Liquidity at the parent and its subsidiaries remains strong. With that, operator, we are ready to take questions.

[Operator Instructions] The first question is from Mike Grondahl from Northland Securities.

Two questions. One, Paul, could you talk a little bit post Kentucky, what sites are you most excited about? And then secondly, kind of getting at a pipeline of new sites, would you expect to add any new sites in '26, '27, like you've added Kentucky and Maryland so far?

Mike, thanks very much. Yes, I'm very excited about Kentucky, not only for what we've been talking about and the customer that we'll be signing, but it has expansion possibilities as well, working very well with the utility there, Big Rivers. And so I think there's great opportunity for expansion. I think that Kerri Langlais run our development and M&A teams. I think we indicated last year, we looked at hundreds of possible sites and selected a few just to move on with. One of those was Morgantown. We're really excited about it. We anticipate mid-summer FERC decision. It's a very exciting site because of its location for data center use, but also because they need generation. Power is really constrained there. So we're going to be doing something that's really good for the grid, really good for state ratepayers and really good for our next data center customer at that site. So I think we're really, really constructive with respect to it. We're going to continue to perform on Lake Mariner and build that out. And then, yes, Kerri's team has worked hard. I think there's a couple of things that they like a lot. It would be premature to talk about them right now, Mike. But again, I think Kerri's experienced teams -- their capabilities will be demonstrated in our ability to add a couple of more pretty compelling sites to the queue. I think we're very, very excited about building out Kentucky right now. And our focus has to continue to be on execution because you're only as good as your last job, and we need to perform for our customers. So that's my primary focus. But yes, I'm very excited about what we have in the pipeline.

The next question is from Stephen Glagola from KBW.

Can you elaborate on the opportunity to partner directly with utilities on future sites? And are there specific markets or power types, where you see the greatest opportunity? And what could this mean for -- whether it's project economics, development time lines and scalability?

Stephen, it's Nazar here. So with respect to where we see things going, more and more so, you want certainty throughout the chain. So that's whether you need new transmission or generation, who's going to fund, who's going to bring the customer and who's going to fund that build-out. So what we're seeing is utilities may have sites that used to have generation or interesting sites within their territories or their jurisdictions. They want load and they may need generation to kind of come with that load. And some of the utilities can do that on their own. You're seeing more and more so of the integrated utilities, I think, taking a more aggressive approach to trying to bring load in and say, "Hey, we're a one-stop shop, come here." And there are other folks who may not have those tools or may not be in the financial position to support all of that generation on the front end. And so they're looking to work with partners like us, who can help bridge that. So there are a number of discussions that we're having kind of across the country with respect to those. Again, it's how do we bring generation into a territory so that we can both bring the supply that's needed as well as bring the load that would use that generation as well. And can we be either the bridge solution to get that generation going or can we be the solution to get that generation going.

Okay. Great. And then if I could just ask one more follow-up on Cayuga Lake. Just an update on the site plan review process there across both Phase 1 and Phase 2, including maybe expected timing for the initial power availability for the 150 megawatts and then the path to expanding to 300 megawatts?

Yes. Cayuga, we're in the planning permit process. We have another meeting coming up that we will be preparing for. The first planning meeting was, I think, really good. They were asking a lot of constructive questions. They're really getting into the details of what we plan to do on site. I can't give you a window into their approval process beyond that it seems to be, in my opinion, going according to the rules. We're engaged. They are engaged. We have homework to do to get back to them with all the responses to the questions they've asked. They're asking good questions. They're asking about noise. They're asking about security. They're asking about fire security measures. They're asking about traffic on the roads. They're asking about all the things that they should in the best interest of their community, and we're trying to be responsive to that. We're still very, very excited about that site. It's pretty great. There are a couple of other things that are going on at that site. There's also going to be a solar facility from AES. A battery storage group is interested in that. So I think the town is -- the Town Planning Board is trying to sort of integrate all those groups in terms of what they're trying to do at their various locations on the lakefront. But I think at the end of the day, we're making good progress. They're being a good partner, and we are excited about our progress there.

The next question is from Brett Knoblauch from Cantor Fitzgerald.

Paul, on, I guess, both Lake Mariner and the Maryland site, maybe just starting with Lake Mariner, I think the slide deck shows kind of 750 megawatts. I guess, is there an update to the additional power that you guys were in queue? Have you received that yet? Or when should we expect to receive that? And then on Maryland, maybe just the cadence of what that progress looks like. Would you look to sign a contract before procuring the generation equipment? Would you look to maybe partner with an IPP at that site or kind of do everything yourself? How should we think about just the cadence of that site, which obviously can be very big?

Yes. Maybe I'll start Naz, and then I'll turn it over to you. In terms of Maryland, we haven't received FERC approval yet, right? So we are receiving a lot of inquiries from customers with respect to the site just simply because of the sheer scale of it. And again, its location in that Washington, D.C., Northern Virginia that Maryland corridor is very exciting for data center use. And it's rare to find it in a brownfield site as opposed to some farm field out in Virginia. This is an industrial site that's going to be reused. And so the county is really excited about it as well about the jobs and the idea that, that site is going to be mitigated and reused. So the answer is, we got -- we have to wait on FERC approval. We're not going to spend a whole lot of money until we have that. We're not speculators. We're highly confident that FERC approval will come. And at that point, our first focus will be on ensuring that we're in compliance with our grid obligations because she is a generator into the grid with her existing units. And our intention is, as you know, to build a much larger gas facility at that site, so we could be a surplus generator. Naz, do you want to take it from here?

Sure. Brett, on Lake Mariner, the incremental 250-megawatt interconnect, we're expecting feedback from the ISO here midyear. So we haven't received anything yet, but we've been told from the ISO as recently as last week that we should be getting that feedback on schedule. So as soon as we have that, that will then drive timing on when that incremental 250-megawatt will be available. And pretty soon thereafter, we'd be looking to market that capacity as well.

The next question is from Nick Giles from B. Riley Securities.

Just wanted to ask on Justified. What are really the key items still being determined there? I mean, should we expect that the customer could be determined at this stage and you're just negotiating terms? Or would it be that you still have multiple customers kind of in the mix that are fighting for that capacity? Just kind of any more color on where things stand would be really helpful.

Yes. I want to be careful here. We've run a very competitive process. And as you know, the space is all about immediately available power, prompt power. And so that's what excited people about the site, plus it's mid-country location. I think that the result of a very competitive process are some terms that we're excited about that we think you will find competitive in the market today. And now we're working through the details of what that looks like in terms -- from the customer side. I remain highly confident that we're there, as I said we would be before the end of the second quarter. But these deals are constantly evolving. There's a lot of disruption in the space, and we want to make sure that we get the absolute best contract terms for our investors and shareholders. On the development side, we're in great shape. We -- our team turned to and we got that agreement with the utility, and so we're all set to go. We've, as you know, initiated limited notice to proceed to Fluor. That relationship continues to grow in the most constructive way. So we're really, really excited about what we have going on at Hawesville.

The next question is from Tim Horan from Oppenheimer & Company.

Are there any terms you'd rather get in the new contracts that maybe you didn't get in the past? Maybe just how you're thinking about how the terms change? And then Justified, if you get everything you need here in the next few months, when do you start construction? When do you think that comes online? And then just lastly, it sounds like there's more locations or power in that area. I mean, just any more color on that.

Tim, it's Nazar here. With respect to just the contracts themselves, I think we've -- the initial contracts we had were 10 years. We were some of the earlier contracts that were signed. More recently, the term has been 15 years. And so that's been, I think, a term that's become pretty well accepted within the market. When we look at the kind of the construct of this, we have a customer that's going to be there for 15 years. Inevitably, there will be some hardware changes that occur during the course of that time. And so making sure that there's an alignment on how that transition will occur and again, whether it happens halfway through it, 5 years through it or 10 years through it, is not the point. It's more of how do we manage that. So when we look at these things, it's really putting together both on the front-end scope. And as Paul mentioned earlier, I mean, things change on that side month-to-month as well. The hardware that's being deployed here depending upon when you're coming online is going to be different if it's 6 months sooner or later. And so that's one thing that feeds into the overall basis of design. And given, again, just how quickly things are moving, we thought we had a final design that was going to work for a number of years, and we did it with Fluidstack and Google towards the end of last year. Again, there's been a couple of iterations on hardware from vendors, and we work with all of the vendors, right? We've got AMD, NVIDIA, Google TPUs. And so we have a number of different OEM hardware equipment. And again, each one of those vendors have an evolution in the hardware they're delivering. So that's another piece that works through it. And then underlying it all is ensuring that the creditworthiness of the counterparty that we have is paramount. And so that's the final piece that we look to in putting these things together is to ensure that, that counterparty credit is aligned with what we've done in the past. And so those are some of the things that go into it. But hopefully, that gives you a sense of just some of the changes and nuances we've had here over the past couple quarters.

The next question is from Chris Brendler from Rosenblatt.

Just wanted to ask from zooming out a little bit, sort of thinking about the demand environment and certainly seems to continue to get stronger and stronger. As you look to the next several years, do you think that we're in a window of opportunity here for sort of higher profitability on these contracts that will dissipate over time? Or do you think that we'll see continued upward pressure on yields, cost and lease rates and terms given the lack of power that's available for this massive AI build-out?

This is Paul. I appreciate the question. Demand is real. I mean the customers are pushing hard to get more prompt power, but they're willing to contract for longer periods of time. I think that the disruption in the space will be in the technology, but it won't be in the fact that they require energy use. Some units may end up being more efficient, but that will just enable more compute time on the same amount of energy. So I think at the end of the day, what we are anticipating is continued pressure from customers based on the strong demand for quality energy. And they're focusing on sites where they think they could be sustainable. They want to know that they're going to places where the regulatory framework is going to be stable, where the energy costs are going to be okay and not in excess of where they anticipate the market is going. I think for us, what we need to do is continue to ensure that we provide low-cost energy, great regulatory framework in our sites, sustainability in terms of the energy mix and stability of the energy price. And then some sort of regional diversification for a lot of our customers so that they're not all focused just in one place like West Texas, but they had places where they could do their high-power compute throughout the country. I think that the market will continue to improve for some time because you just can't bring power online that quickly. We have a lot of hopes in our country for continued power development, but it takes time. It takes time to permit. It takes time to refine the energy mix for the customer. I just think it all takes time. So I don't think the window is too narrow. I think Steve Byrd's talked about the shortage of electricity in this country for a couple of years now being pretty significant. I don't see that shortage. I don't see supply coming online fast enough to meet the demand. And so the need is not abating. So we're pretty constructive. But that doesn't drive our strategy. Our strategy is more driven on what we know we can do. And that's why we've told the world we're out there to put 250 megawatts to 500 megawatts in the ground in any given year. We're highly constructive and confident about our abilities to do that. And if there are some larger projects that come along and customers want to participate in that, then we'll work with them, and we will. But we think slow and steady is going to win this race. We anticipate to be doing exactly what we're doing several years from now.

That's very helpful, Paul. I appreciate that. And a question for Patrick, kind of a similar question, certainly seeing increasing acceptance and demand from debt investors for companies who have pivoted from Bitcoin mining, which was not that financeable to HPC. And I think at first, it was a little tougher to get debt deals done, and now it seems like it's getting easier, terms getting better, spreads are tightening. Just wanted to hear Patrick's perspective on the financing outlook and how things have improved.

Chris, it's exciting, right? I mean come a long way in a very short period of time. And now all of us are starting to look more like traditional S&P 500 companies, right, with project finance debt, real revolvers. I think one thing we put in the release today that I think our whole team is really proud of is $250 million revolver from 8 different banks, that a group of global leaders and financial institutions. That's a big accomplishment. And I know some of our peers are doing that, too. So yes, I think as a whole, the entire space is just becoming more legitimized. And not only that, what's exciting for me, I mean you've seen us use a bridge, a revolver, high yield bonds, right? Project finance bonds. I think you'll see us, one of our peers just opened up the loan market. So, yes, I think it's becoming more common place with the rating agencies, with high yield investors, with IG investors. And, I constantly come back to, for us, like, where we are trying to go is, I want flexible debt structures, meaning structures that I can call in a couple years because where I -- ultimately I'm trying to drive things and us as a team are trying to drive things is we want to be an investment grade company. And, I had a front row seat early in my career to watching, Cheniere go through the capital raising process and ultimately, financing projects at the project level is very efficient when you're first getting started. But then once the projects are up and running, right, the way the massive unlock for the equity happens is you take out those project financings with long-term bullet investment-grade debt. And that's where I think we are trying to drive our bus. And I think the space will follow because there's a lot of cash flow that comes out of these projects. And once you've amortized the debt down to a comfortable level, there is a massive unlock in free cash flow that happens for the equity, and that's only a couple of years away for us.

The next question is from Brian Dobson from Clear Street.

So as you're in conversations with new clients, how would you characterize potential contract terms compared with, call it, similar conversations last year? Have your hurdle rates changed? And what do you view as the biggest constraints on future development at this point?

Brian, it's Nazar here. So there's a handful of customers that we all want at these sites. And so in the near term, assuming you have access to the power, right, that's where the discussion starts. I mean there's one constraint is just people's time. The 6 customers, 8 customers everyone wants are doing a number of different things. For us, we have one site that we're focused on at one time. And so that one site is 100% of what we're doing and it's probably not 100% of the customers that we want of what they're doing. So one is just, again, finding that alignment between the customer and where they're at, what they're looking for and where we're at. And I would say that's a more meaningful part of the art of getting this stuff done than people think. And so that's one is just, again, kind of the timing alignment on where you are. The other piece is these larger customers are looking to build zones of capacity. So it's not just a site in isolation that they look at in a state, but it's really once they go into a place, they're looking to have a footprint. And so they also want to have a view to -- can in those locations, can they continue to expand. And so whether that's with you or with others, but in those areas, can they kind of expand a footprint. So it's not just a single site that they're at, but it's multiple sites that they're at. So that's another piece that gets back to this overall alignment is, different folks are in different phases in different parts of the country. And so one group may be ramping up in the Southwest, another may be ramping up in Kentucky. And so that's where part of our work is really to kind of find that overlap as well with what we have and what we're bringing to market and where those folks are. So those are some of the things I just think from a market and demand perspective that we're working through. I think as Paul mentioned earlier, the 250 megawatts to 500 megawatts that we have guided the market to is well in line with what we can deliver. And again, I think across the 6 or 8 customers that we want, it's also meaningful enough but not so large portion of what they want as well. And so there's ample room for us to be able to deliver that with the capacity that we have. And so -- and the other piece that I'd just kind of to finally add in is in trying to build a model with a couple of folks, where we can maybe even kind of be ahead of the game in understanding where their growth plans are. And so again, as I was saying before, if there's a group, one of the folks is looking to build out a zone in one part of the country, can we be the resource for them to kind of identify the next site within that zone versus us just coming to them when we have something in hand. And so that's another kind of discussion that's ongoing with counterparties that we have is not just kind of focused on what's in front of us right now and negotiating a lease agreement, but it's also a little bit more strategic and saying, "Hey, in this zone, should we be looking for other things for you as well."

And Brian, it's Patrick. Just to follow up on your economic question. It's the same. We've kept the same sort of discipline and principle from day 1, which really, again, is yield, right? And that's just your NOI yield effectively over your cost to build. That's what we try to target. But I think the added element, right, is that has to align with also the credit support that you're getting from the counterparty, right? Is it direct on balance sheet? Is it credit sleeved? How does that look? But that's really the focus because as Nazar mentioned, I think a lot of the other lease terms have moved to a market rate across multiple providers, multiple sites, others, but that's, I think, still the economic focus for us.

The next question is from John Todaro from Needham & Company.

Congrats on the progress so far. I guess just on Kentucky, can we say if there's kind of a frontrunner at that site and if we're thinking direct IG hyperscaler there? And then I have a follow-up.

Yes, we like somebody a lot for that site. It was a very competitive process, and I would assume it's going to be investment-grade, super high-quality customer.

Okay. Great. And then just housekeeping modeling item. Can you remind us on the cadence of the Bitcoin mining ramp down maybe on a hash rate basis?

Yes. John, it's Patrick. I think I'll get back to you on the specifics, but I think today, we're somewhere probably between 5 and 6 exahash. And we won't be putting any significant amount of money into that business. So as some of the miners kind of come offline because we're repositioning buildings or power feeds for the HPC leasing segment, we'll kind of slowly eat into that capacity. I think generally speaking, for the year, though, we're going to try to be in that sort of 5 to 6 exahash range. And then I think beyond this year, it's kind of wait and see. But I think we will likely be out of that business certainly by the next halving. But it is -- this quarter is a great example. I mean it does provide a very significant service to the grid and provided us with some nice cash flows this service -- excuse me, this quarter as well, and we'll continue to do that in the future. So yes, that's kind of what I would use for the modeling.

The next question is from Martin Toner from ATB Cormark.

Congrats on a great quarter. The political risk of the AI data center build-out seems to be like slowly but surely picking up. And just can you talk a little bit about how you guys are mitigating that sort of like NIMBY development risk that comes from the political risk related to concern over AI buildup?

Sure. Appreciate the question. Listen, people are concerned when somebody comes into their community and wants to put up a big building, and there's a lot of misinformation out there about whether or not they're going to take water from a lake or they're going to be radiating or they're going to drive up electricity prices in the community. So the first thing to do is to help educate the community. And we're very focused on that. We've been developing power plants for over 25 years. So before data centers were the big ugly, power plants were the big ugly. And then people realized Holy cow, we really do need energy. So we need to be thoughtful and responsible about the energy that we build, but we do need it. We can't just be in denial about that. Likewise, data centers, they're really important. They serve an important goal for humanity. And I think that they do use electricity. And so the market has started to evolve to this notion of you got to bring your own generation or in order to be connected to the grid, we want you to show us your nameplate capacity or we want you to be a surplus generator. And so the answer is that different communities are going to define what their needs are. We're never going to solve the problem for the person that's just an absolute -- we don't want any progress, we don't want a data center. But what we can do is educate the community on what the data center will bring from a constructive perspective in terms of jobs, economics, what it won't do in terms of -- it's not going to harm the environment, it's not going to drive up electricity prices. And once we work on that education, then we work that all the way through from the everyday citizen in the town hall to their local representatives in government. I think that it's important for folks to appreciate that we're not all the same. Not every site is equal, not every developer will bring the same degree of thoughtfulness or responsibility or responsiveness to these developments. But that's TeraWulf's mission. We are -- we have customers that are world-class and socially very, very conscious and want to contribute to the benefit of the communities. And that's what we're all about. So I think that you got to pick your spots, you have to understand what you're walking into, and you have to be -- lead with transparency because in that transparency, people will ultimately get very comfortable because we're doing the right thing. So we're dealing with it in Maryland, where, as an example, it's a very -- it's a state that wiped out its generation, unfortunately, and now it's paying the price for it. So they've come back and they've been very supportive. Governor and the state, the MDE, they're very supportive of building new generation that is thoughtful and responsible and clean. And they're excited about bringing jobs to a county, where -- there was a former plant and now people miss those jobs. So I think you could work with it, but it requires work. It's nuanced, and it will be -- the teams that win here are going to be the teams that have gone about this in a mature and thoughtful and constructive way.

That's great. What caused you to -- what caused EBITDA to be a bit lower than the given range?

Yes. Martin, it's Patrick. So closing out the books on our business has gotten increasingly complicated as we get a lot bigger. And so when we gave that guidance in April, we weren't done as far as inputs into the general ledger and other things. So there were two specific items. One is tenant fit out and the other is there are costs that we incur up at WULF Compute that have to get split between PP&E, meaning like a capitalizable cost and an operating expense, right, as OpEx. And so in my remarks, as you saw, there was about, I think, $3.5 million or $3.2 million of operating expense at WULF Compute that when we were putting together the preliminary guidance effectively was in PP&E. And as we kind of went through and closed out the final books, that kind of came out of the CapEx basket and went into the OpEx basket. So a lot of that stuff, honestly, will normalize, Martin, as we bring operations up and online, right? We don't -- we won't have to kind of keep going through those buckets carefully every quarter, but that was what drove it.

The last question is from Michael Donovan from Compass Point.

For Maryland, my understanding is that the site currently has live peaker plant capacity and that the independent Market Monitor has raised questions on that front. Obviously, your planned battery capacity appears to more than address that issue once completed. But can you walk us through how you expect to manage the existing capacity during the build-out and what steps you're taking to address regulatory concerns?

Sure. The existing capacity will continue to operate. So there is no plan to do any -- make any changes whatsoever to the existing capacity that's there. So as a part of our plan, all of the things that we've been discussing with respect to battery storage, gas generation are incremental to that. So that's an important point to note that existing 210 megawatts or so of operating capacity will continue to be bidding into the PJM market as a peaker. And incremental to that, we'll be looking to add battery storage capacity, efficient gas-fired generation capacity and load. So that's kind of the setup there. And so both in discussions with -- if you have read through the filings that we did at FERC, we've kind of reiterated that point. And also with the various discussions we've been having with the local utilities as we've been discussing the potential for adding capacity there, both on the generation side as well as the load side, we've highlighted to them that, that capacity is staying.

This concludes the question-and-answer session as well as today's call. You may disconnect your lines at this time. Thank you for your participation.